One of an adult's top priorities is paying their bills. When you have more expenses than you have income, you have to find ways to get things settled. For some people, credit cards and easy-to-obtain loans are the answer. The problem with this is that eventually, those have to be paid. This adds to the monthly bills, which can compound your financial problem.
Before you turn to credit cards or payday loans as a way out of your current financial situation, you need to think about what you're getting into. There are some situations when these are appropriate, but knowledge is power when it comes to these financing options.
The lowdown on payday loans
Payday loans seem like a good idea when you need a little bit of fast cash. The approval process is usually straightforward, but the interest rates are exorbitant. While most credit card interest rates will top out at around 36% for someone with bad credit, the interest rates can be 400% or higher on a payday loan. These short-term loans usually have a due date within two weeks of the disbursement of funds.
When they become due, some people can't afford to pay them. They then have to pay for an extension of the loan until the next payday. Some people end up having to roll over the payday loans several times before they repay them. These loans can quadruple in only a year, which can lead to considerable debt.
There is also the matter of bounced check fees at your bank if you don't have sufficient funds to cover the payment. If you are unable to pay the loan and the lender tries to collect its money, they might also charge you a bounced check fee.
Never-ending credit card balances
Credit cards are another area where people sometimes fall into considerable debt. The problem is that you will get stuck in a never-ending cycle of debt if you only pay the minimum payments on the cards each month. Very little of that money goes toward the principal balance of the account because interest is paid first. Still, a credit card is a better option for emergencies for most people.
When you look at your debt as a whole, you might realize that you need to do something to take control of your finances. One option is filing bankruptcy, which reduces or removes your debt load so you can get back on the financial footage you deserve.